MasterBrand, Inc. Q4 FY2025 earnings call

Business Update - Fourth Quarter and Full Year 2025

• The quarter was shaped by ongoing demand pressure and a complex trade backdrop. Net sales decreased, adjusted EBITDA declined, and gross profit margin was impacted by lower volume, tariffs, and other factors.
• End markets like new construction and repair and remodel were under pressure with continued market contraction, trade-down behavior observed, and Canada facing similar challenges.

Supreme Integration

• 2025 was the first full year operating as an integrated organization, making progress on capturing cost synergies with benefits from procurement, network, logistics, and overhead efficiencies, on track to realize $28 million in annual run-rate cost synergies by year three post-close.

American Woodmark Transaction

• Advancing planning, expecting to close early in the year subject to regulatory approvals, anticipating approximately $90 million in run-rate cost synergies by the end of year three post-close.

Continuous Improvement and Capital Allocation

• Continuous improvement efforts outperformed plan, helping offset volume pressure and tariff impacts. Capital expenditures were in line with expectations, balance sheet and liquidity remained healthy, providing flexibility for integration and shareholder returns.

In the fourth quarter, MasterBrand generated net sales of $645 million, a 3.5% decrease compared to the same period last year. Adjusted EBITDA for the quarter was $35 million with an adjusted EBITDA margin of 5.4%. For the full year 2025, net sales were $2.7 billion, up 1% versus the prior year. Adjusted EBITDA was $298.2 million, down 18% from the prior year with an adjusted EBITDA margin of 10.9%. In Canada, the market declined mid-single digits in both the fourth quarter and the full year due to affordability and turnover dynamics.

First Quarter 2026

• End markets expected to be down mid to high single digits year over year, net sales expected to be down mid-high single digits versus prior year.
• Implementing $30 million of planned cost reductions in 2026, expecting to begin realizing savings in the first quarter and full realization by year-end. Adjusted EBITDA expected in the range of $23 million to $33 million, adjusted diluted loss per share expected $0.06 to $0.00.

Full Year 2026

• Addressable market expected to be down mid-single digits year over year, decremental margins elevated due to volume declines, mix, and tariff timing but expected to improve in the second half as mitigation actions phase in. Interest expense expected flat to down. Effective tax rate expected to improve. Free cash flow expected in excess of net income. Unmitigated gross tariff exposure estimated at approximately 5%-6% of net sales, expecting more than 85% of net negative tariff impact reflected in 2026 and full offset by mitigation initiatives by 2026.

• Trade tariff uncertainties such as Section 232 tariffs on timber, cabinets, etc., remaining 25% in 2026 with a 50% rate scheduled for 2027, Mexico's tariffs on Chinese imports, and countervailing and antidumping duties on plywood which impact costs and demand. These uncertainties make visibility into key performance drivers, cost inputs, and near-term demand limited, affecting profitability and planning.

Q: Starting with the full-year outlook for the market to be down mid-single digits. Just wondering if you could maybe help us break that down by end channel, talk to what you're assuming for the builder market broadly this year versus home improvement?

A: Yeah. I think they're both about the same. The builder may be a little worse in the beginning, but then I think you're gonna catch up with easier comps. I think the R&R market, which is what we consider retail, is kind of down mid-single digits fairly consistently throughout the year. It's our best guess at this point. I think part of the reason that we've gone to quarterly guidance is it's a little unclear still what the spring season is going to look like. So that's going to guide a bit of what the full year ends up being, but we wanted to at least signal that we believe the year to be down. And a lot of that, you know, in the near term is being driven by the pace of starts, which we saw declining last year.

Q: Hi. Thanks. Thanks for all the color. I wanted to follow-up to some of the residential construction weakness that you saw late in the quarter. I think your sales actually exceeded your prior guidance if I remember correctly. So just kind of wondering if you could provide a little bit more detail on how sales during the quarter progressed and some more color on what you saw at the end of the quarter, on the residential side?

A: Yeah. That piece actually behaved in some ways similar to the prior year where we saw a pretty big drop off in late November, which we weren't expecting this year. In order to cover that, there was other volume that was stronger, as I just mentioned. It was opening price point in different parts of the business. In all, we did miss what we thought we could do from a forecast standpoint internally, so we were off to that as well. Overall, but I think that it was primarily a mix shift that you're seeing in terms of the end result. So we were able to get to, you know, down a couple percentage points, but it was not through, you know, there were certain factories that just were very inefficient in the quarter, which is the results in our, you know, bottom line outcome.